Economic data released Thursday morning — including February's Producer Price Index (PPI) and US retail sales — came out hotter than expected, showing that stickiness in inflation persists. Stifel Chief Economist Lindsey Piegza joins Yahoo Finance Live to discuss what these readings mean for the future of the Federal Reserve's interest rate cuts.

Piegza states that these prints will make it "hard for the Fed to justify a near-term rate reduction." She believes the Federal Reserve will wait until the second half of the year "to initiate a change in [monetary] policy." With investors anticipating a rate cut in June, Piegza considers this prediction "overly optimistic" given the elevated inflation data that has been released.

Piegza suggests that the Fed "stopped short" of where rate hikes should have initially occurred, saying "they are allowing inflation to become fully entrenched the longer they sit on the sidelines."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

SEANA SMITH: Let's talk a little more about what this means for the Fed's calculus because the February PPI print showing that inflation still remains sticky. Top line producer price rising 6/10 of a percent on a monthly basis. That was more than what forecasters had been expecting.

We also got a read on the consumer this morning. Retail sales rising in the month of February, rebounding from the decline that we saw in January. Also pointing to the fact that shoppers are still out there spending.

So let's talk about what this all means for the path forward for the Fed. For that, we want to bring in Lindsey Piegza, the chief economist with Stifel. Lindsey, it's great to have you here. So we've been scratching our heads a little bit just in terms of the fact that traders are still pricing in three rate cuts between now and the end of the year. Is that your base case or what do you think the Fed is likely to do on the heels of these latest prints?

LINDSEY PIEGZA: I think given the stickier than expected nature of inflation, it's going to be very difficult for the Fed to justify a near-term rate reduction. Our base case is that the Fed holds off to the second half of the year before initiating a change in policy. Now, the market, as you mentioned, has capitulated from at least a March rate hike out to June. But I think even that is overly optimistic again given the latest inflation data, suggesting that we may continue to see the Fed on the sideline for much, much longer than expected if we're unable to see evidence that inflation is retreating back to that 2% target.

JARED BLIKRE: And Lindsey, as far as the evidence goes about that inflation, those inflation numbers not quite getting to 2%, we've seen headline CPI plateau over the last year. Super core, we don't hear much about super core anymore, but that's services ex housing, that has stabilized above 4% So what is the risk that the Fed has to chase inflation to the upside once again?

LINDSEY PIEGZA: Well, the risk is that the Fed didn't raise rates to an actually sufficiently restrictive level, that they stopped short of where we should have seen that back up in policy. And they are allowing inflation to become further entrenched the longer they sit on the sidelines and the longer inflation remains above that target. So the risk is that inflation remains above these levels, above 2%, and the Fed is eventually forced to come back into the marketplace and continue to raise rates.

Now, that's going to be a very difficult sell to the market because the Fed has clearly communicated that they're comfortable with this current terminal level of 5 and 1/2% on the upper bound. But should inflation remain stagnant, that means the Fed is on the sideline. Should inflation reverse course meaningfully, that means the Fed may have to come back in with additional rate increases.